Trade war hits SE Asia, growth down for first time in 3 years

US-China dispute weighs on Singapore and Thailand economies in 2019

Southeast Asia’s growth rate declined in 2018, falling for the first time in three years, as some countries were hit by external and domestic headwinds that could continue to weigh on the region this year.

According to data compiled Monday by the Asian Development Bank, gross domestic product for the region’s five major economies — a weighted average for Indonesia, Malaysia, the Philippines, Singapore and Thailand — expanded 4.8% in 2018. The growth rate for 2017 was 5.1%, following 4.6% in 2016.

Southeast Asia, home to 650 million people and one of the world’s fastest growing regions, faced several headwinds to growth in 2018, including escalating U.S.-China trade tensions and weakening local currencies.

Singapore’s yearly growth rate fell for the first time in three years to 3.2%, from 3.9% in 2017. Growth in the manufacturing sector slowed 10.4% to 7.2%, while that for wholesale and retail trade dropped from 1.9% to 1.5%, indicating that the highly open and trade-reliant city-state was hit by the U.S.-China trade tensions.

GDP in the Philippines slowed from 6.7% to 6.2% due to slumping consumption stemming from higher-than-target inflation such as on the price of rice.

Malaysia was hit by more domestic concerns. Its growth rate dropped from 5.9% in 2017 to 4.7% in 2018. Public investment reduced by 5.2% from 2017, as the new government of Mahathir Mohamad, formed last May, halted some government fiscal restructuring projects.

On the other hand, Indonesia and Thailand — Southeast Asia’s largest and the second largest economies — grew faster than the previous year.

The Indonesian economy expanded 5.17% last year, up from 2017’s 5.07%, despite numerous challenges including several major natural disasters and a plunging currency. Private consumption grew 5.05%, slightly faster than last year. Hosting events like the Asian Games likely contributed to the growth. Bank Indonesia raised interest rates by a combined 175 basis points throughout the year, contributing to a difficult growth environment.

Thailand on Monday posted 4.1% growth for the 2018 full year, up from 2017’s 3.9% growth. Tourism and exports were the two key factors behind the rise. Tourism-related private consumption and investment accounts for roughly 20% of the nation’s GDP. Thailand reached a record number of 38 million tourist arrivals in 2018, a rise of more than 7% from the previous year.

The National Economic and Social Development Council forecasts growth for 2019 in the 3.5% to 4.5% range. The council sees the government’s policy direction after the general election on March 24 as a risk to the country’s economic growth.

On a quarterly basis, GDP for the five countries dropped to 4.6% year-on-year in the October-December period, marking below 5% for the second quarter in a row.

Singapore especially saw a rapid decline in the fourth quarter of 2018. Its Q4 GDP growth rate slowed to 1.9% year-on-year, from 2.4% in the previous quarter. This was due to a slower manufacturing sector, especially in electronics and precision engineering.

Looking ahead, the region’s pace of growth could further falter this year.

Singapore’s Ministry of Trade and Industry last Friday noted that downside risks in the global economy had increased since a quarter ago, citing “a further escalation of the trade conflicts between the U.S. and its key trading partners” and “a sharper-than-expected slowdown of the Chinese economy.” The city-state said it expected slower growth in 2019 than 2018.

“We expect export growth and manufacturing activity to moderate over 2019 against a more challenging global trade backdrop and slower Chinese import demand,” according to Sian Fenner, lead Asia economist at Oxford Economics, referring to Singapore.

Thailand’s Siam Commercial Bank expects the Thai economy to grow by 3.8% this year, slower than in 2018. “The Thai economy is entering a late expansion cycle owing to an economic slowdown in major economies and the impact of the trade war, which will put pressure on Thai exports growth this year,” said Yunyong Thaicharoen, chief economist at Siam Commercial Bank Economic Intelligence Center.